Enterprise Resource Planning software, or ERP, is by no means a new addition to the industrial toolbox. Among manufacturers generally, it has been the standard software tool for efficient production for decades. ERP systems automatically pull together a company’s logistics, distribution, shipping, processing, procurement, and sales information into a single software package and coordinate all that data for quality production intelligence. It is hard to imagine bringing any product to market today without it.
The manufacturing environment is simply too complex and involves too many components for uncoordinated efforts to stand a chance. ERP is the central system connecting all of the components necessary to get a product produced as efficiently and as cost-effectively as possible.
Among metalcasters, though, the penetration of this software tool — and the centralized, connected mindset it demands — has been relatively slow.
“When we came into the market in 2000, we discovered that the foundry industry had not really embraced the ERP methodology,” according to Stephan Hoppe, president of Guardian Software System, a Wisconsin-based ERP developer that specializes in programs for foundry operations.
“We came from environments where the ERP mentality is one that is meeting customer requirements, being flexible, being lean,” he said. “We discovered very quickly that our software was a really different sort of animal for the foundries. They weren’t used to that. We were introducing them to a whole different way of thinking.”
The ERP Mentality
At its heart, ERP is simply a piece of software to collect and sort information — it contains a custom assembly of auto-fed modules that monitor everything from intake to sales, to provide reports that help companies do business more intelligently.
From this perspective, ERP shouldn’t be a hard sell to an industry straining under today’s global pressures. However, foundries are famously slow to adjust. In the world’s oldest industry, traditional methods and traditional processes seem too stubbornly ingrained to allow for dramatic technology moves.
“You have that sort of family-owned mentality in foundries,” explained Hoppe. “They have that ‘this is the way I’ve always done things’ mindset, and they’re not necessarily anxious to hear from some guy out of Wisconsin that they’re doing it wrong.”
In today’s market, however, there is no room for such footdragging. “Not that many years ago, there were 6,000 foundries in the [domestic] industry and today there is about 2,500,” Hoppe detailed. “Those that are left understand the need to get good information to improve the bottom line.”\
Shane Allen, head of North American Operations at Synchro ERP — a provider of ERP systems to metalcasters worldwide — has encountered this same resistance to change throughout the industry.
“The fundamental casting process is not changing; we’re not changing lead into gold with ERP,” he allowed. “But, there are so many metalcasters out there that quite literally run a business on the back of an envelope and a few spreadsheets. In 2012, that isn’t working for them. They need to be in control of their costs.
“Driving value in the foundry is fundamental today, and we’re seeing more and more foundries realizing the need for modern systems to meet that need.”
Coming into the 21st Century
“The foundry industry in the last few years has had to change to accommodate the customer demands,” said Guardian’s Hoppe. “The industry is embracing this change. They may be going in kicking and screaming a little bit, but they are embracing it.”
A big part of this change, and a big part of the conflict it suggests, is the greater demand placed on the foundries by their already-optimized customers in the manufacturing supply chain. “Caterpillar, John Deere, regardless if you’re a foundry or an injection molder, they don’t care. They just want their parts. If you want to do business with them, you’re going to need to accommodate schedules that otherwise might have been unreasonable,” according to Hoppe.
Failure to meet these demands, he said, just opens the market up for other foundries that can do so. The pressure to ramp-up production and meet these new high-pressure demands, he said, is accelerating the spread of ERP and the ERP mindset through the industry.
“The whole thought-process behind integrating everything, getting a handle on schedules, getting a handle on inventories — which up to this point didn’t even exist — just being able to get more accurate information and tying the entire enterprise together… is becoming a necessity,” said Hoppe. “Otherwise foundries are not going to survive in the marketplace.”
Understanding your Business
To compete, foundries must be able to provide real-time intelligence on production metrics to show the location of every piece in production, what every member of the staff is doing, the quality of every piece, and what is happening on the plant floor to meet each order — a hard thing to do on the back of an envelope.
For many operations, this is where ERP becomes a necessity. For every job entered into the system, Hoppe explained, “ERP takes over and tells you what you have to do to accomplish the order. The system tells you what you need to do, the things you need to buy based on capacity, the good news and all the bad news.”
It provides a roadmap for optimized production and allows foundries, even small and midsized companies, to stock up and meet orders for major customers on their schedules, he said. “ERP forms a discipline in your company,” said Al Scargall, president of investment caster Craft Cast Co. Inc. “Once you put it in place, you know where everything is, you know the stage it is at, you know the costs of where it’s at, and it helps you work through your process.”
Basically, he said, “it’s just one hell of a major tool that really allows you to understand your business.”
From tracking customers to providing current and historic volume measures, Craft Cast’s ERP system allows it to track and record exactly the kind of quality they are achieving and everything that goes into achieving it.
“Anything that has to do with processing or operating a business, you have access to that information,” said Scargall.
Unlocking Costs
According to Scargall, the greatest single benefit ERP systems offer to foundries is access to new insights into costs. “We have to know what our costs are,” he said. “I don’t want to know how much you think we’re going to make profit-wise on a product, what I want to know is the cost of making it because that will determine the profitability.”
By inputting material costs, bills of materials, bills of design and breaking the process down through each segment of operation and calculating its cost by area, he said, ERP takes the roof of what it is costing him to produce castings.
“The awareness of what we are actually doing on the floor and where we stand financially opens the door to improvement,” he said. “You thought you were making 10% on one part, for example, but when you finally see the data, it turns out you’re not. Then, we start working on what we have to do to make it actually happen.”
ERP, he said, “tells us the efficiencies of our people and the machines they’re running. We can review that on a daily basis to see if there is something that an employee needs to do to pick up production, so not only do we check the percent of their performance, but if their performance is not at the standard, we can go help them.”
This level of insight tightens up the entire process, tying any deviance from the standard to the dollars they cost at the bottom line.
Over the last 3.5 years, Scargall said, this kind of insight has helped him bring Craft Cast’s scrap volume down from 14.5% to 4.5%.
“You can’t just continue to raise prices,” he said. “Before you raise prices, you’ve got to do everything you can internally (to contain costs.)” Because ERP systems show scrap levels and delivery dates, and summarize performance, “it really undresses you and tells you what kind of performance your company has,” he said. Doing so unlocks the complexity of costs and allows foundries to price goods intelligently.
“I can’t tell you how much to charge for a product if I don’t know what it costs me to make it,” he said. Breaking costs down to every point in production guarantees that the operation will recover the cost needed to retain a consistent profit on each project.
It may mean reductions at the other end, too. “If it’s not costing me what I think it’s costing me, I ought to give you a price reduction,” Scargall pointed out. Despite rising costs industrywide, Craft Cast has managed to do just that since it adopted an ERP system.
ERP in the Foundry
“I think most industries are beginning to see the light,” said Guardian’s Hoppe. “They understand that they have to do something and they understand that if they’re losing work, they’re not getting market share. They understand that they need to do something to get better information.”
Moreover, he concluded, foundries understand a crucial lesson learned from today’s difficult, contracting market: “If you keep doing what you’re doing, you’ll always get what you got.”
Travis Hessman is an associate editor with IndustryWeek. Contact him at [email protected]